“Cash-In” Refinances & Interest Rates

We have all heard of “cash-Out” refinancing but are you familiar with “cash-in” refinancing?  With a “cash-in” refinance, you get to lock in today’s historic low rates by bringing the funds “out of pocket” needed to cover the difference between your mortgage balance and the maximum loan amount you can qualify for on your new mortgage loan.  

While this isn’t a “new” concept, it is seeing renewed life in today’s mortgage market.  With interest rates this low, most people with mortgage rates above 5.25% would stand to benefit tremendously by refinancing into a rate around 4.375% – 4.625% (Conforming).  Over the past year, nearly a third of all borrowers who refinanced lowered their principal balances by putting money into the deal rather than taking it out.  We consider this prudent financial planning, and we encourage all of our clients with higher rate loans to consider a “cash-in” refinance loan.

Here are some additional reasons to consider a “cash-in” refinance:

• Earn a better return on your money with a lower rate. With savings accounts and other investments yielding little these days it makes sense to put some of your funds into your home, especially if you can knock a point or two off the mortgage rate. Paying down a mortgage is essentially a guaranteed rate of return in the form of savings.
• Avoid the higher rate: Typically high-balance loans between $418,000 and $729,750 are 1% point higher than conforming loans.  If it is feasible, a “cash-in” loan that takes the mortgage balance into the conforming loan limit will result in a much lower interest rate.
• Rebalance debt: Rates are much higher on investment properties. Consider a “cash-out” refinance on your principal residence and use that money to do a “cash-in” refinance on your second house or investment.
• Private Mortgage Insurance: Avoid mortgage insurance by moving your money into your mortgage. PMI insurance is required on loans with a loan-to-value ratio above 80%. It may make good financial sense to do a “cash-in” refinance if you can get your balance under the 80% threshold. Rates are so low it may make sense to have PMI and still save a ton of money on your mortgage.  PMI can be removed once you reach 80% LTV with an appraisal.

It’s a good time to review your mortgage options.  Give us a call, and we will be happy to explore all your options.

General Refinancing:

For those who are unable or unwilling to do a “cash-in” refinance and you currently have an adjustable rate loan or a fixed rate loan above 5.25%, a “rate and term” refinance transaction may still  be in your best interest.  You don’t have to have 20% equity in your current property to refinance; there are several programs that we can tailor to meet your specific needs.  Call us today for a no cost consultation!

 Home Purchasing:

If you are in the market to buy a new home, this is the time to get Pre-Approved and start your search. If you need a knowledgeable Realtor, please call me and I can recommend someone we have worked with before that knows and understands today’s complicated market place.  

 For our clients in California, don’t forget about the California tax credit of up to $10,000 for newly built homes, and up to a $10,000 tax credit for first-time homebuyer of existing homes. These credits were available beginning May 1 and be good through Dec. 31, 2010, or when funding is exhausted, whichever comes first.